German Businesses & Investments

Questions covered:

Opening a local business in Germany as a US citizen

Of course, before opening a local business in Germany, you will likely need to obtain a visa or work permit in order to legally reside and work in Germany. What’s more, you must decide on your business structure and register your business with the appropriate German agency. There are several German agencies in which you may need to register your business such as the local offices of Business and Standards, the local Labour Office, the trade office (Gewerbeamt), the tax office (Finanzamt), etc. You can find out more detail on the appropriate office for your region provided on Germany’s Federal Ministry for Economic Affairs and Energy website.

What types of local business structures are there in Germany, and what would be the US filing requirement?

Sole Trader

As a Sole Trader, you are self-employed. You will need to report your self-employment to the IRS via form Schedule C.

Limited liability company (GmbH)

A limited liability company (Gesellschaft mit beschränkter Haftung or GmbH) means that the business is considered a separate entity from the individuals who form it. You will need to report your Limited Liability company to the IRS via Form 5471.

Corporation (AG)

A corporation (Aktiengesellschaft or AG)  also has limited liability, but (in Germany) requires at least five people to form and requires a high initial investment amount. You will need to report your corporation to the IRS via Form 5471.

Partnership (OHG or KG)

In Germany, the partnership model can be a Offene Handelsgesellschaft (OHG) in which the partners are responsible for all the liabilities of the company, or a  Limited Partnership (Kommanditgesellschaft, KG) comprised of general partners with unlimited liability and limited partners whose liability is limited to the amount of their contributions. You will need to report your partnership to the IRS via Form 8865

Germany - US FATCA Treaty Overview

The Protocol signed at Berlin on June 1, 2006, amended Article 26 of the Tax Treaty between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes. The amendment authorizes the exchange of information for tax purposes, including on an automatic basis. Such automated exchange of information was enacted through the Foreign Account Tax Compliance Act (FATCA), a piece of legislation introduced by the United States government in 2010, to help counter US tax evasion.

In Germany, the principles of FATCA have been brought into the local law. This means that German financial institutions need to provide information on US accounts to the German tax authorities (Bundeszentralamt für Steuern). Further, it becomes a subject to the Intergovernmental Automatic Exchange of information.

When did German banks start sending data on the US account holders?

The main requirements of the US and Germany Intergovernmental Agreement came into effect on 31 May of 2013.

German banks were required to extract account balances at 30 June 2014 and undertake checks depending on the value of the account. Higher value accounts (balances over $1m) were reviewed by 30 June 2015 and lower value accounts ($50k - $1m for individuals and $250k - $1m for entities) will need to be reviewed by 30 June 2016.

What searches do a German bank have to do to comply with US FATCA?

Financial institutions must search their data to identify financial accounts held by US Specified Persons, or by foreign entities in which US taxpayers hold a substantial ownership interest.

In order to achieve this, financial institutions need to search their data looking for any one of seven indications (indicia) that an account holder may be a US person. These indicia are:

  • US citizen (check for US passport or green card).
  • US residential address
  • Place of birth in the US
  • US telephone number
  • Standing instructions to send funds to a US bank account
  • Power of attorney (PoA) or third party authority in favor of a person with a US address
  • Use of a c/o or hold mail address

Which types of German financial accounts must/are not required to be reported on FBAR / FATCA?

Account types that must be reported

  • Individual bank accounts such as savings accounts, checking accounts, and time deposits
  • Retirement accounts
  • Brokerage accounts, commodity futures or options accounts
  • Insurance policies and annuity contracts with a cash value
  • Business accounts where US person has a greater than 50 percent interest in the entity

Account types that are not required to be reported

Even though FATCA will provide relief in reporting scope to many German retirement plans and certain collective investment vehicles that are considered “deemed compliant”, the FATCA rules applying to individuals were not relaxed. Form 8938 specifically requires reporting by U.S. taxpayers who participate in foreign pension plans.

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